Real estate through your holding company. What role can it play?

Many entrepreneurs hold a significant portion of their wealth not privately, but within their holding company. After years of profit distributions from the operating company, or following the sale of a business, there is often capital available that is not immediately needed. The question then becomes what role real estate can play from your holding company. This is primarily a question of capital allocation: how much can you spare, for how long, and how does it fit alongside your existing assets? In this article, we outline the considerations for you, without drawing fiscal conclusions for your specific situation.

In short

• Investing in real estate from a holding company begins with the question of which part of the capital is truly available.
• The liquidity of the operating company and the duration of the investment must be aligned.
• Whether investing via a holding company or privately is more favorable depends on your personal situation and requires your own tax advisor.

Why entrepreneurs consider real estate from their holding company

Capital in a holding company is often generated by the business itself. It sits in a savings account or an investment portfolio, and the returns are modest. At the same time, it is not money that the entrepreneur uses on a daily basis. This makes it a logical candidate for investments with a horizon of one or more years. In this context, real estate is attractive because it is tangible and can show a different performance profile than stocks and bonds.

Furthermore, many entrepreneurs think in terms of generations. Capital in a holding company is often intended to be passed on eventually. An investment that is carefully documented and easy to track fits that goal better than an investment you barely understand. In our article on real estate as part of your wealth planning we delve deeper into that broader consideration.

Which part of the capital in the holding company is truly available?

Not everything in the holding company is freely available. A holding company often serves a function for the operating company, for example as a financier or as a buffer for setbacks. There may also be agreements with the bank that dictate how much capital must remain within the group. Before you invest, it is therefore wise to determine what amount the business might need in a bad year. Only what remains after that is considered available capital for the purpose of this assessment.

The liquidity of the operating company

A real estate project requires patience. At Dutch Value, a project typically runs for 6 to 18 months, and for fixed interest, a term of 12 to 36 months applies. During that period, the capital is tied to the project and cannot be withdrawn early. Therefore, never invest capital that the operating company might need during that period. A shortfall in the business cannot be resolved with money tied up in a villa in Spain.

Diversification within the holding company

Diversification is also wise within the holding company. An investment in a real estate project is a concentration in one property, in one location, with one outcome. It is therefore standard practice to allocate only a portion of the available capital to it. What portion is appropriate depends on the size of your total assets and your other investments. An independent financial advisor can help determine that ratio.

Holding company or private: what is the difference?

The difference between investing from your holding company and investing privately is primarily fiscal. Returns in a private limited company (BV) are subject to corporate income tax. If the holding company later distributes those returns to you, taxation in Box 2 follows. Capital that you hold privately generally falls under Box 3, a regime that has been in significant flux in recent years.

Which route is more favorable for you depends on your income, your plans for the capital, the size of the investment, and how the return is distributed. The tax treaty between the Netherlands and Spain also plays a role. We deliberately draw no conclusions about this in this article. Always discuss this with your own tax advisor before making a decision, and also consider how the investment will be processed in the holding company's annual accounts.

How an investment from the holding company is documented

Every participation at Dutch Value is recorded in a notarial agreement under Spanish law, detailing the project, the amount, the chosen model, the duration, and the method of distribution. Whether a participation from your holding company is possible and how it is documented is something we discuss per situation with you and your advisor. This also covers who the contracting party is and where distributions are sent. You can read about what the notary in Spain does exactly and what agreements you will find in the contract in our article on the notarial agreement.

The projects themselves are conducted through Dutch Value Investments S.L., a Spanish company that is the party involved in the purchase, renovation, and sale. You can read about how that structure works and why we choose it in our article on investing via a Spanish S.L.. If your holding company has multiple shareholders, document internally who decides on the investment. This prevents discussion if choices need to be made during the term.

A calculation example

The example below is fictitious and intended to illustrate the consideration. It says nothing about an existing or future project, and the amounts are before taxes.

Suppose your holding company has €2,000,000 in liquid assets. You decide that €600,000 must remain available as a buffer for the operating company. Of the remaining €1,400,000, you want to invest a maximum of one-quarter in a single real estate project. That amounts to €350,000.

If you choose a fixed interest rate with an indicative return of 8% per year, the return on a €350,000 participation is indicatively €28,000 per year. With a term of 24 months, that is indicatively €56,000 in total, before corporate income tax.

If you choose profit sharing, there are no interim distributions. The proceeds are then derived entirely from the project result after sale and may be higher or lower. In both cases, €1,050,000 remains available for other investments, so the holding company does not become dependent on a single project. You can read about which model suits your goals on the investment models page.

Only invest from your holding company what the business does not need during the term.

Common mistakes

When investing from a holding company, we see a number of recurring points of attention. They have less to do with the project itself and more to do with the position of the holding company.

• Not maintaining a buffer for the operating company, causing a bad year in the business to coincide with tied-up capital.
• Not aligning the investment term with planned expenditures, such as an acquisition or a major investment in the business.
• Assuming someone else's tax position instead of having your own situation calculated.
• Allocating too much capital to a single project, causing the diversification within the holding company to disappear.
• Failing to document who makes decisions within the holding company if there are multiple shareholders.

A good partner will help you clarify these points in advance. In our checklist with six questions for every real estate partner, you can read how to evaluate a party yourself.

Frequently asked questions

Can my holding company participate in a real estate project in Spain?

We discuss that on a case-by-case basis. Every participation is recorded in a notarial deed, and the question of who the contracting party is belongs to that discussion. Always involve your own tax advisor so that the choice between holding and private investment fits your situation.

Is investing from a holding company more tax-efficient than investing privately?

That varies by situation. Proceeds in the holding company are subject to corporate income tax, and distribution to private individuals falls under Box 2, whereas private assets generally fall under Box 3. Which route is more favorable for you depends on your personal circumstances and requires a calculation by your own advisor.

What is the minimum amount to participate?

The minimum participation at Dutch Value is €250,000 per project.

How long is the capital tied up?

A project runs for an average of 6 to 18 months. For the fixed interest model, a term of 12 to 36 months applies. During that period, the capital is project-bound and cannot be withdrawn early, unless otherwise agreed upon in the contract.

Which model best suits a holding company?

That depends on what the holding company intends to do with the proceeds. If you are looking for predictable income, fixed interest is the obvious choice. If you do not need the proceeds in the short term and want to share in the results, profit sharing is a better fit. The hybrid model combines both. You can read more about this in our article on profit sharing, fixed interest, or hybrid.

Conclusion

Real estate held through your holding company can be a valuable addition to its other assets, provided the capital is truly available and the investment horizon aligns with your business. The tax implications vary by situation and should always be discussed with your own advisor. We are happy to review the structure, the model, and the project with you and your advisor.

Would you like to explore the role real estate could play in your holding company? In a personal meeting, we can outline the options for you.

Stated returns are indicative and not guaranteed. Investing in real estate projects involves risks. You may lose all or part of your investment.